Problem No. 1 on Options based on Chapter 8 A Call Option on the stock of XYZ Co

Question

Problem No. 1 on Options based on Chapter 8
A Call Option on the stock of XYZ Company has a market price of $9.00. The price of the underlying stock is $36.00, and the strike price of the option is $30.00 per share. What is the Exercise Value of this Call Option? What is the Time Value of the Option?

Problem No. 2 on Options based on Chapter 8
The Exercise (Strike) Price on ABC Company’s Option is $21.00, its Exercise Value is $23.00, and its Time Value is $7.00. What is the Market Value of the Option? What is the price of the underlying stock?

Problem on Capital Structure Change – Chapter 15 – No. 4

Problem on Capital Structure Change – Chapter 15 – No. 6

Problem on Swaps based on Chapter 23
Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%.

Suppose A issues floating-rate debt and B issues fixed-rate debt, after which they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A.

What are the resulting net payments of A and B?

Problem based on Chapter 23 – Futures Contract
What is the implied interest rate yield on a Treasury Bond ($100,000) futures contract that settled at 100’24 (or 100 24/32)? If interest rates increased by 0.75%, what would be the contract’s new value?

Assume that this is based on 20 Years, with an annual yield of 8%, with semi-annual payments.

Explanation / Answer

Problem 1
Intrinsic value (Exercise value) = Stock price - Strike price = 36-30 = $6
Time value = Option price - Intrinsic value = 9-6 = $3

Problem 2

Stock price = Strike price + Exercise value = 21+23 = $44
Option price = Time value + Intrinsic value = 7+23 = $30

Problem 3
Net payment for A = 7.95% + LBR+1% - LBR = 8.95%
Net payment for B = 9.4% + LBR - 7.95% = LBR + 1.45%

LBR+1% 7.95% 9.4%

<---------- A ---------> B ------------>

<----------

LBR

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.